What defines a bond in financial terms?

A bond is defined in financial terms as a loan for a fixed period of time with a fixed interest rate. When an investor purchases a bond, they are essentially lending money to the issuer of the bond, whether it be a corporation or government entity. In return for this loan, the issuer agrees to pay the investor a specific interest rate over the life of the bond, which is known as the coupon rate. At the end of the bond's term, called the maturity date, the issuer repays the principal amount to the investor.

This definition is grounded in the nature of bonds as debt instruments, where the bondholder receives periodic interest payments, providing a predictable income stream, while the principal amount is returned at maturity. This clarity in repayment terms and interest structure distinguishes bonds from other forms of financing and investment.